How Online Checking Accounts Work

Online checking accounts have many of the same features as more conventional accounts, but there are a few special features that come only with online checking.

"Online bill pay" is a common feature with online checking accounts. Instead of using a payment system or sending checks to your creditors through the mail, you can transfer the funds electronically through your bank, using funds in your online checking account [source: Nationwide]. The beauty of online bill pay is that you can avoid the cost of stamps and any fees from third-party payment programs that many companies and utilities use to accept your monthly payments. The money will also be delivered to the creditor usually in one or two days, as opposed to the five to seven days when a check is mailed.

Some online accounts offer rewards programs tied to debit cards too. Not to be confused with a rewards checking account, these programs allow you to earn points for purchases and redeem them for goodies [source: Wang].

One of the major drawbacks with online-only banks is that it can take much longer to deposit a check. Without a physical location or ATMs, the only option used to be mailing any checks you receive to a central depository. However, many banks, both online and traditional, now offer "mobile deposits" to make depositing checks much faster. Using the bank's smartphone app, you snap a photo of the check you need to deposit, and the bank uses the image to deposit the funds for you [source: Block]. Of course, there's still a delay as the funds clear, but it's much faster than mailing things in.

Banking online can be convenient, but there will be times when you need access to cash. Because online-only banks don't have physical locations, they'll often offer ATM fee reimbursements. Usually, they'll only reimburse a certain number of transactions each month. Fee reimbursement is becoming so common that even banks with brick and mortar locations are starting to follow suit [source: Wang].

How do you manage your money in an online account, and is your money safe there? We'll look at how deposits, transfers, and security work on the next page.